Exam 1: Introduction

Each economic model can be applied to many different real-world problems.

When economists say that policy A is more efficient than policy B, they mean policy A is better than policy B.

Economists talk about trade-offs a lot because they have come to understand that whenever there is a winner from a policy or transaction, there must also be a loser.

If two individuals voluntarily agree to a transaction that only affects them (and no one else), it must be that the transaction is efficient.

If medical patients are rational (in the way economists think of the term), they will do what medical experts believe is best for them.

One of the aims of positive economics is to rank policies under consideration from most desirable to least desirable.

When economists assume that people are rational, they are assuming that people generally agree what is good for human beings.

A spontaneous order emerges from individual decisions that cause something to "work" without anyone planning for it to "work".

In order to predict behavior, economic models must be realistic.

Suppose two economic models give the same predictions --- but one is simplistic and unrealistic in its assumptions while the other is rich in detail and resembles the real world more closely.If the sole goal of the economist is to predict, then the economist should use the simple and unrealistic model.

To say that one policy is better than another because it is more efficient is a normative, not a positive, statement.

Positive economics can tell us which policies are efficient and which are not.